Holidays ring with sales taxes

DAVE DOWNEY

Staff Writer

As holiday shoppers flock to malls to buy gifts for relatives
and friends, they can expect to pay a lot more than advertised
prices.

Because of a thing called the sales tax, buyers typically will
fork out 7.5 percent more than the numbers on those price tags.
That is the going rate at which the sales of most products are
taxed in San Diego and Riverside counties.

And as cash registers ring with coins and currency that
merchants pray will inject new life into a Sept. 11-weary economy,
city, county and state coffers will fill with cash critical for the
continuation of a wide variety of government programs in the new
year.

Sales tax collections typically account for a quarter of the
state's budget, said Vic Anderson, a supervisor for the California
Board of Equalization's sales and use tax department in
Sacramento.

Area cities rely on sales taxes to pay up to half their
expenses, as in the case of fast-growing Temecula which recently
pulled in $16 million, much of it from a slew of auto dealerships
and the city's new glittery mall.

"It is the lifeblood of these cities," said Bill Horn, a Valley
Center avocado rancher who serves as chairman of the San Diego
County Board of Supervisors.

"It is a very large and critical revenue source for the annual
budgets of cities and counties," added Craig Scott, manager of
transportation finance for the San Diego Association of
Governments, a regional planning agency representing 18 cities and
San Diego County.

"And it is flexible," Scott said. "The money comes with no
strings attached, unlike a lot of the revenues they receive."

Staple of diet

In post-Proposition 13 California, the sales tax has in essence
become the primary staple of the municipal diet.

Cities, frustrated with the 1978 proposition's 2-percent-a-year
cap on the growth of property taxes no matter how fast a home's
value increases, have increasingly turned their attention to luring
sales-tax-rich retail centers that enrich their coffers.

And it didn't help that, in 1992, the state decided to
permanently shift 25 percent of local government's share of
property taxes to schools.

The state itself relies heavily on sales tax.

Faced with a particularly tight budget last summer, state
lawmakers decided to increase the statewide sales tax a
quarter-cent to balance revenues and expenses. That increase takes
effect Jan. 1, 2002. The total tax on most products returns to 7.75
cents on the dollar in San Diego and Riverside counties, after a
one-year quarter-cent reduction tied to the short-lived state
budget surplus that evaporated with the electricity crisis and the
terror attacks.

Anderson said just about anything that isn't a food product --
including most items people are buying at malls for gifts -- is
taxed at that 7.75 percent rate. But determining what is taxable is
hardly simple.

Most food items aren't taxed in the grocery store. But he said
sodas, beer, wine, cigarettes, dog food and cat food are.

"It's got to be people food to be tax free," he said.

Of course, meals at fast-foot outlets and restaurants are taxed.
That's because the food is in a "heated condition" and made to be
eaten on the premises, he said.

Exceptions

Water is not taxable, because it is something that is
ingested.

But ice is.

"True, it's just frozen water," he said. "But under the
statutes, ice does not qualify as a tax-exempt product."

The rules also are a little tricky when it comes to medicine,
which tends to be taxable when purchased over the counter.

"A lot of prescription medicine is exempt," he said. "Aspirin,
if you buy it off of the shelf, is not exempt. But if you get a
prescription for Tylenol from your doctor it is exempt."

Here's the breakdown of where that 7.75 cents goes, according to
the Board of Equalization and the San Diego Association of
Governments:

5 cents goes to the state general fund to pay for things like
schools, transportation and -- in the current political environment
-- energy purchases.

A penny goes to the city where the tax was collected, or to the
county if collected in an unincorporated area.

A half-cent goes for county health and social services
programs.

A half-cent pays for local public safety programs, as a result
of Proposition 172.

A quarter-cent goes to counties to help them pay for public
transportation programs.

A half-cent goes into regional pots to fund new highways,
freeways and rail lines, and to improve city streets and retrofit
freeways with carpool lanes in San Diego and Riverside
counties.

San Diego County's version of the half-cent transportation tax,
dubbed TransNet, has raised nearly $2 billion since April 1, 1988
-- roughly half of all money spent on the county's transportation
projects since then.

"It is a key piece," Scott said. "And having a local revenue
source has helped us bring in more federal and state dollars than
we otherwise would have -- it has had a leveraging effect."

Without TransNet, North County residents would not have their
Coaster commuter train that runs between Oceanside and San Diego,
and there would be a lot of unfinished freeways that don't go
anywhere, Scott said.

"And, of course, the streets would be $600 million worse off
than they are today," he said. That's how much TransNet sales-tax
money the 18 cities and county government in San Diego County have
received over the past 13 years.

In Riverside County, the communities of Temecula, Murrieta and
Lake Elsinore have received funds for their streets, and a
particularly deadly 8.5-mile-long stretch of Highway 74 in the Lake
Elsinore area known as "Blood Alley" is being widened. But most of
the freeways receiving money from the county's so-called Measure A
have been far to the north, such as Highway 91.

Both counties' taxes expire in 2008.

Riverside County residents are going to be asked next November
to vote in favor of extending Measure A 30 years beyond its Dec.
31, 2008, expiration date. San Diego County area officials, who
also want to extend TransNet beyond its last day of March 31, 2008,
are weighing whether their extension measure should hit the ballot
in 2002 or 2004.